What Gives Cryptocurrency Value? What Factors Affect It?
These days you can see cryptocurrency almost everywhere, as with the increasing value of Bitcoin, it’s almost impossible that you haven’t heard of crypto coins. Even if you are not interested in cryptocurrency, its increasing value makes a difficult to avoid it.
Even when you compare the prices of Bitcoin, Ethereum, or any other digital asset, you can see that these coins are highly valuable. But here comes the question what gives cryptocurrency value?
Through this article, you will get answers to almost all your questions related to cryptocurrency and its increasing value and also some interesting facts about cryptocurrency.
What Gives Cryptocurrency Value
Cryptocurrency is a digital and virtual currency that we can use for different purposes for secure transactions. In cryptocurrency, they are different types of digital assets like Bitcoin, Ethereum, and various altcoins.
The values of these coins keep increasing or decreasing due to some factors, and those factors are:
The most important factor in the value of cryptocurrency is scarcity. In case of increasing demand for any digital assets, then its supply will automatically give rise to the value of that asset.
If we take the example of Bitcoin, there are only 21 million bitcoin, but in case of increasing demand by people, it will become scarcer. An increase in scarcity will lead to an increase in its value.
Although, every digital asset of cryptocurrency has its built-in scarcity. Because each coin comes with a limited supply, and when then the demand for these assets increases, the value of cryptocurrency also increases.
Well, there are also those crypto coins that have an unlimited supply, just like Ethereum. Some coins have an infinite supply, and some also have a burning mechanism that can decrease the supply of any coins at a particular time. This burning mechanism is also used to increase the value of any crypto coin.
Another factor that can play a major role in the value of cryptocurrency is utility. Particular use or real-world application of any coin is counted as the utility of that coin. Hence the more any coin have used in the world it will automatically increase the more interest people have in that specific coin and make people buy it for long-term investments.
Once again, if we take the example of Bitcoin, this specific coin has a market value and digital gold with a limited supply which automatically plays a major role in its increasing value. That is why Bitcoin has the highest value of all types of cryptocurrencies.
On the other hand, if you also consider Ethereum, we all know that Ethereum is the second most-used cryptocurrency in the world. This coin is also known as the “world computer” because of having contract capabilities. Although, because of being versatile, Ethereum is used widely in different places. Hence, Ethereum is the second most popular cryptocurrency after Bitcoin.
The third factor that can influence the value of cryptocurrency is its demand. Particularly level of interest and adoption refers to the demand for that coin. In easy words, the popularity of that coin can increase its demand and make it more valuable by increasing its price.
For example, a dogecoin doesn’t have that much utility or scarcity, but due to its meme-inspired branding, its popularity increases its demand among people. Because of this popularity and increasing demand Dodge coin was counted in the top 20 cryptocurrencies by the cryptocurrency market capitalization.
News, partnerships, and regulations are external factors that can affect the popularity and demand of any specific cryptocurrency coin.
4. Perceived Value
Perceived value is the fourth and last factor that can determine the value of any cryptocurrency. Compared to all other factors, this last factor is more subjective and essential. The perceived worth of any coin by the general public is considered the perceived value of that coin. Three factors, branding, media coverage, and community sentiment, can determine the perceived value of any coin.
If we consider Bitcoin to take an example, Bitcoin is considered digital gold because of having decentralized nature and limited supply. This causes an increase in the value of Bitcoin, although Bitcoin doesn’t have that much utility.
On the other hand, Ethereum has the second-highest value because of its contract capability and potential. Just because of the positive sentiment, Ethereum has the second highest value even though it is not that used and popular among the people compared to Bitcoin.
One more thing about perceived value is that it works positively and negatively. For example, a positive perception of any coin can cause an increase in its value, but at the same place, any negative perception can also cause a decrease in the value of that same coin.
How Do Users Increase The Value Of Cryptocurrency?
After getting to know the answer to what gives cryptocurrency value, it’s time to see different methods used by crypto users that can increase the value of any crypto coin. And those factors are:
Buy Coin At Low And Sell It High
The most used and traditional way of trading used by different investors is to buy the coin when the price is low and keep it until the price goes up. If you are buying a coin, it automatically increases its demand, and an increase in demand can automatically trigger the value of that coin.
Mining also affects the supply of a cryptocurrency, which is why many investors prefer mining bitcoin or different altcoins.
Increase In Utility
When different institutions start to accept cryptocurrencies as a form of payment, it causes an increase in their utility. So any user of cryptocurrency can affect the utility of any altcoin. So by this method, you can increase the values of cryptocurrencies for a longer period.
You can play a major role in increasing the value of any crypto coin through social media accounts. Because according to media coverage price of cryptocurrencies fluctuate.
So that’s all; now you know what gives cryptocurrency value. Generally, there are four factors: scarcity, utility, demand, and perceived value. But the user of these crypto coins can also play a major role in the increasing value of different altcoins. Apart from that, it’s enough to explain why some coins are more valuable than others.